February 28, 2024

You’re the Boss Blog: Can Small-Business Owners Handle the Truth?


Putting a price on business.

About two years ago I told a business owner a number of things she wasn’t ready to hear about the sale of her business. She was disappointed with our meeting, called later to tell me she disagreed with what I had said, then listed her business for sale with one of my competitors. I didn’t lose much sleep over it at the time. In fact, I happened to admire both her and her business, and I slept better knowing that I had told her what I thought.

After her contract expired with the other broker, her business still unsold, she called me again. What she said to me was something I’ve been told by other business owners in a roundabout way in the past. But on some level I had been waiting to hear the sentiment expressed in the exact words she used on the phone: “I appreciate you telling me the truth.”

There seem to be two camps when it comes to hearing unpleasant truths (whether it has to do with politics, relationships or business) — those who want you to give it to them straight, so they can roll up their sleeves and do something about it, and those who want none of it. Reality can be hard to accept, especially when it comes to your business. A recent article asked business owners to share their stories about a business that didn’t make it. One former owner couldn’t talk to the reporter when asked to contribute. “I don’t know if I could make it through your questions,” she said in the article. “I might just cry and cry.” It had been 10 years since her business had failed.

When my husband and I opened our business brokerage firm after selling our own business in 2006, I thought I’d be helping entrepreneurs achieve an incredibly joyous and lucrative milestone in their lives — the sale of their business. There would be high fives and hugs amid popping champagne corks. Unfortunately, this is not the case as often as I would like. Much of my time is spent on the less glamorous tasks of educating business owners on how the marketplace will view — and value — their business, and helping them set realistic expectations for the arduous process of selling. In short, I’ve had to learn the fine art of being a downer.

Along with the huge upside of cashing out and moving on, there can be many unpleasant realities associated with the sale of your business. Businesses tend to be valued at much less than the seller had anticipated, family members and employees feel betrayed, Uncle Sam takes a depressingly large cut of the deal, and even in the best possible scenario the seller can feel a deep sense of loss.

In the world of business exits there is something known as “the value gap.” This is defined as the dollar amount between what the seller wants — or needs — and what the business is really worth to a buyer. It’s a fairly straightforward, quantitative exercise to figure out what it would take to fill the gap. Figure out what multiple of earnings would result in the owner’s desired value, determine the corresponding increases in revenue and profit required, then plan the necessary operational changes to achieve those targets. But there is a mental and emotional component to this process that is harder to fill.

Because it’s so much easier to place blame, I believe that the media are partly at fault for creating this perceptual gap. All of those examples of the guy who started a fabulous business in his dorm-room closet and sold it to Google for millions (without turning a profit) may be harmful. While I am as awestruck as any reader, these stories are far from the ham-and-egg reality of what most small-business owners go through when selling. Looking to those magazine headlines for any semblance of what it’s like to sell a business is like reading a romance novel for marriage advice.

Perhaps it’s human nature to want to be deceived. But denial in the business world can be costly. Selling a business is a high-stakes game in more ways than one. I asked that business owner — whose plans for the future had to be shelved for two years while she was stuck in her business — if there was anything I could have said or done that would have been helpful during our initial conversation. She said no, and admitted that she simply needed to learn a long, hard lesson.

In the meantime, I continue to try to close the gap between perception and reality when it comes to selling a business. And while some people walk away, I’m okay with that. Evidently, some of those people come back when they’re ready.

Article source: http://feeds.nytimes.com/click.phdo?i=c71e31e59665c15520a8784e8eb807ea

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